New Apple hire foreshadows possible iTunes subscription service

Apple Computer has made a key hire in its quest to deploy a subscription-based iTunes music service, luring Julia Miller from Microsoft's XBox Live team.

At Microsoft, Miller was responsible for the worldwide marketing and sales programs for Xbox Live, the world's first broadband-only online gaming service. Like several of today's emerging online music download services, XBox Live is based on a monthly subscription model.

According to industry insiders, Miller left the Redmond, Wash.-based software giant for Apple in early March. Sources close to Apple later confirmed that Miller had joined the company, but were unable to produce details pertaining to her new job function. In brief conversations with other publications, Miller refused to confirm her previous employer and her present-day title at Apple.

During her two-and-a-half-year stint on Microsoft?s XBox Live team, Miller was influential in the branding and successful launch of the service. She brings to Apple more than fifteen years of consumer sales and marketing background, including extensive experience with SegaNet, the first online console gaming service.

Rumors have suggested that Apple has been quietly preparing a subscription-based model for its iTunes music store. Insiders expect the company to introduce the service later this year in an effort to compete with similar services from Real Networks and Napster, which offer subscribers access to an unlimited number of music downloads for a small monthly fee. The subscription service would coexist alongside Apple's already successful 99 cents per song model, sources said.

The potential for an iTunes subscription service has been a topic of conversation amongst industry analysts in recent weeks. Many question the economic significance of the subscription model and whether iTunes could benefit from offering consumers a choice in payment structure.

In a research report released to clients last week, Merrill Lynch analyst Steve Milunovich downplayed the potential of the subscription-based sales model, but said he believes Apple can establish a subscription service with few barriers to entry. "Record label executives we spoke with believe the market could be bimodal with the majority people choosing to purchase and a niche for subscription services," the analyst wrote in his report.

Industry insiders AppleInsider spoke to said Apple has nothing to lose by offering a subscription model and is aggressively following a plan that would have the service launched by the end of the year. They believe the only major obstacle at hand is developing a version of FairPlay -- the company's proprietary digital rights management software -- that is compatible with a subscription service. "[Apple] stands to lose more by not offering consumers the choice," said one industry source, who believes Apple could wind up dominating the music download market with a 90% share via a bimodal service offering. The company would also need to ink new licensing agreements with record labels to include songs "rented" under the subscription model.

Given Apple's strong relationship with the labels, insiders say Apple's goal would be to offer 100% of its music catalog through its subscription service. Competitive services are currently able to offer up to two-thirds of their catalogs in their subscription plans because of licensing restrictions. According to sources, Apple would likely be negotiating terms where the labels would receive approximately 5 cents for each song downloaded and transferred to a music device, per month. By comparison, insiders say Apple surrenders approximately 64 cents to the labels on each of the songs it sells for 99 cents. Apple has said that iTunes has been operating at close-to break even, but has showed a slight profit in recent quarters.

Prior to joining Microsoft, Miller spent five years with Pepsi Co., where she led strategic initiatives and major branding campaigns for both Pepsi and Pizza Hut. She also played a major roll in the initial launch strategy of the point-of-sale (POS) technology in the grocery store environment for Citicorp, providing flexible payments and efficient marketing strategies such as the Safeway Preferred Card.

I never had a problem personally with subscription systems. In fact I think the two go hand in hand.

1. Give me the option of filling my iPod with as much music as it will hold.

2. Make the DRM extensible and smart so that if I take a liking to a song I simply purchase it right in the iPod itself and next time I sync my transaction commences and I gain all the rights that I would have had if I had purchased the song anyways.

Aren't you all forgetting something? under many music subscription services, when you stop paying, all your files self destruct.

yeah uh I think I'll stay in control over my computer, thank you very much.

So? The plusses of subscription services are way too great to ignore. Point: How exactly do you, in its current form, cruise around the iTMS and find music you MIGHT like? There's a lot of music I might look at, but you can't tell squat from 30 second previews, and I have a huge problem spending $10 on an album then to find out its not that good. A killer subscription service would offer mega-huge playlists of various genres, sort of like a whole set of internet radio stations. Add an easy way via iTunes AND the iPod to mark a song as "Hey, add it to my cart to buy". I've bought albums based on one or two songs I've heard that I like (most I like, sometimes I regret).

Another point: Look at all the so-called 'latest and greatest' artists, who, in all sense and purpose, are all basically just another copy of the last 'latest and greatest' artist. The music might be worth listening to for a month or two, but after that, all you want to do is say "Goodbye Vanilla Ice!". But if you buy the album (esp. on the iTMS), you don't want to delete it (you spent all that money), but you don't want to keep it. And then your brain explodes.

Aren't you all forgetting something? under many music subscription services, when you stop paying, all your files self destruct.

yeah uh I think I'll stay in control over my computer, thank you very much.

Oh, one more thing. If you stop thinking of a subscription service as some type of music store where its 'your music', and look at it more in the vein of 'satellite radio, but where you control what you hear", then you can get passed the "But I lose all MY music!" whining that everyone does. People make it sound like the end of the world if you let your subscription run out.

Rumors have suggested that Apple has been quietly preparing a subscription-based model for its iTunes music store.

Resistance to the subscription model is futile. It's just too lucrative to have the steady flow of cash that subscriptions bring. Right now they're the WalMart of online music. They could also be the Blockbuster. There's a reason magazines don't just sell their rags on the news stand. So when I read this, I immediately thought of the rumored movie/video subscription service(s), not music. If they just wanted to add a subscription model for iTunes, they didn't need someone of this caliber. I'm sure they've had the iTunes subscription ready to go for some time now. This is for something bigger...

Look at 2005 so far:

1. Partnership with Sony

2. Mac Mini

3. Quicktime's adoption of the H.264 Codec

4. Untapped market of online movie distribution

5. OSX Tiger's upcoming release

6. Advent of dual core processors

7. IBM selling it's PC business

8. Job's announcement that 2005 will mark a turning point in HD video adoption

9. PS3 and XBox adoption of PPC

10. ...and now the big-name hiring of someone versed in subscription based services.

My prediction is an online movie distribution model that is available via iTunes, PS3 and the XBox2. 2005 will be remembered as the year the traditional PC died as an entertainment system.

My prediction is an online movie distribution model that is available via iTunes, PS3 and the XBox2. 2005 will be remembered as the year the traditional PC died as an entertainment system.

i still dont think we'll see a movie download service in 2005, and some of us use computers for work, not entertainment. so 2005 wont be the death of anything except maybe itunes rivals when apple releases a subscription service.

i still dont think we'll see a movie download service in 2005, and some of us use computers for work, not entertainment. so 2005 wont be the death of anything except maybe itunes rivals when apple releases a subscription service.

Why else should Steve proclaim 2005 as the year of HD? Because iMovie does HD? What a snooze! We'll see. Did you see the H.264 Codec demo Steve did a while back? It's going to change everything. I'll go so far as to make another predition. In the next few years we will witness the end of the web as a print-like medium. Except for mom and pop websites, it becomes mostly interactive video. It's almost there, anyway.

Just to correct you, I predicted the demise of the PC only as an entertainment system, not for work.

I totally agree on your last statement. Apple's adoption of a subscription service WILL kill it's rivals. Perfect time for a stock split

It would be interesting to see how Apple tie a subscription service into their offerings. How would music downloaded on such a service be used? I'd guess that you wouldn't be able to use them in iMovie, for instance, as that's making a permanent copy of the track. Likewise with burning onto CD. What about streaming to other users?

I had a wacky idea the other day for a subscription service that's used as an improved "preview" of music. It would have to be low cost - much much less than regular subscription services - but you can download as many tracks onto your iPod to give them a whirl. The catch is that they will only stay on there for a month, and you can't put them back on there in subscription form for another few months afterwards. So it's kind of "download it for a month, if you like it then buy it".

It doesn't address the problems I listed above, but it does make the subscription and a la carte services complimentary to one another. Do you think people would go for that? Or am I slowly going insane? Slowly... steadily...

I just do not see the appeal of renting your music. Why would you want to pay $180/yr. to *any* company in order to *keep* your music -- forever?? It's a deal that just gets worse and worse the longer you're involved with it.

I suppose it's smart for Apple to prepare just in case subscription turns out to be the next big thing, but I'd be interested in seeing if there was anything new they could bring to the table. Right now it seems like it's for people just begging to locked-in to some payment plan for very, very long time.